Understanding Incoterms 2020

Incoterms are the shorthand of international trade. Published by the International Chamber of Commerce, these three-letter rules define the responsibilities of buyers and sellers for delivery, cost, and risk. Getting them right prevents disputes; getting them wrong can be expensive. Here is a clear breakdown of Incoterms 2020.

What Incoterms Do and Don't Cover

Incoterms answer three questions for every shipment:

• Who arranges and pays for transport?
• Where does risk transfer from seller to buyer?
• Who handles export and import formalities?

They do not cover the transfer of title, payment terms, or which law governs the contract. Those belong in the sales agreement.

The 11 Rules in Two Groups

Incoterms 2020 contains 11 terms, split by mode of transport.

Any Mode of Transport

• EXW (Ex Works): the buyer takes on nearly everything from the seller's door.
• FCA (Free Carrier): seller delivers to a named carrier or place.
• CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To): seller pays carriage to a destination; under CIP the seller also buys insurance.
• DAP (Delivered at Place), DPU (Delivered at Place Unloaded), and DDP (Delivered Duty Paid): the seller carries responsibility deep into the buyer's country.

Sea and Inland Waterway Only

• FAS (Free Alongside Ship) and FOB (Free on Board).
• CFR (Cost and Freight) and CIF (Cost, Insurance and Freight).

Key Changes in the 2020 Edition

If you last reviewed the rules years ago, note these updates:

• DAT became DPU, broadening "terminal" to any place where goods are unloaded.
• Insurance levels differ between CIP (higher cover required) and CIF (minimum cover).
• FCA now allows an on-board notation, helping sellers using letters of credit.

Common Mistakes to Avoid

• Using FOB or CIF for containerized cargo. These sea terms assume goods cross a ship's rail; for containers handed to a carrier at a terminal, FCA, CPT, or CIP fit better.
• Naming a vague place. Always state a precise named location, for example "FCA Rotterdam, Delco Cargo warehouse."
• Assuming DDP is simple. The seller becomes responsible for import duties and clearance in a country where it may have no presence.

Closing Thoughts

Choosing the right Incoterm aligns cost, risk, and control with your commercial intent. When in doubt, name the exact place and match the term to your transport mode. The Delco Cargo team reviews Incoterms with clients regularly to make sure contracts and shipping reality stay in sync.